Interest rates on PPF accounts have yet again been left unchanged at 7.6 per cent for September quarter. PPF or Public Provident Fund accounts is a Government-backed instrument, investments in PPF is safe and yield is fixed.
There is no risk involved. PPF is a 15-year product, which means that your PPF account matures in 15 years. Since the PPF has a long tenure of 15 years, the impact of compounding is huge, especially in the later years. However, PPF accounts cannot be opened by NRIs, Hindu Undivided Family (HUF) and trusts.
Things you should know about PPF accounts:
1) The interest rate on PPF accounts for the quarter ending September 2018 is fixed at 7.6 per cent per annum. The interest on PPF accounts is compounded yearly, which means that every year, interest is added to your principal amount. Interest is calculated on the minimum balance (in PPF Account) between the fifth day and the end of the month and is paid on 31st March every year.
2) The contributions made to PPF accounts can be claimed for tax rebate up to Rs. 1,50,000 under Section 80C of Income Tax Act, 1961. One of the reasons for this is that the tax benefit it offers comes under the EEE (exempt-exempt-exempt) tax status. This means that at the investment, the interest earned, and proceeds received at maturity are all tax-exempt or free.
3) If you want to avail loan on PPF accounts, you can do so after the third financial year and this facility is available till the fifth financial year. The loan can be taken once a year.
4) Partial withdrawals are permissible from PPF accounts every year from the seventh financial year onwards from the year of opening of account. However, only 50 per cent of the accumulated amount by the fifth year can be withdrawn.
5) A minimum of Rs.500.00 subject to a maximum of Rs.1,50,000 per annum may be deposited. The subscriber should not deposit more than Rs.1,50,000 per annum as the excess amount will neither earn any interest nor will be eligible for rebate under Income Tax Act. The amount can be deposited in lump sum or in a maximum of 12 instalments per year.
PPF accounts are ideal investment vehicles for investors who are risk-averse and do not mind settling for a lower investment return, say financial planners.>